How to Protect Yourself When Using a Debt Consolidation Service

The easiest way to spoil your credit history is by piling up a lot of debt and missing payments. Other than its impact on your credit score, a huge debt will also significantly affect your lifestyle and peace of mind.

If you’ve made some bad financial decisions or have had to make a huge emergency expense using debt, you may be wondering how you are going to get out of this situation. If you’re desperate to steer yourself out of a debt trap, you can go for an effective debt management method known as debt consolidation.

Many credit counseling agencies and debt consolidation companies have sprung up in the past few years, especially in the aftermath of the financial crisis. They offer a variety of consolidation programs for easier and quicker debt relief. Depending on the plan chosen, the firms negotiate better repayment terms and reduced lending rates. They also offer settlement options that can lower outstanding balances by a significant percentage.

Agency credentials

You have to be careful when choosing a debt counseling of consolidation agency. Check its track record and look up on the internet for any customer ratings or complaints. Talk to people you know who have availed debt consolidation services and used the same service provider. Watch out for fraudulent schemes. If you encounter any suspicious clauses in the proposed agreement, just contact another firm and keep searching until you find a reliable one.

You should always prefer non-profit agencies that belong to the Association of Independent Consumer Credit Counseling Agencies (AICCCA) or the National Foundation for Credit Counseling (NFCC).

Is debt consolidation really the solution for you?

Consolidating your debts may not necessarily be the best option to settle all types of dues. If you have high interest unsecured debts like personal loans, credit cards or collection accounts, it makes perfect sense to seek debt consolidation. On the other hand, if you have a low-interest mortgage or other liabilities like overdue tax payments, it will be of little use choosing a debt consolidation plan.

Debt consolidation schemes can help you improve your financial situation and get your credit score back on track. But getting this help does not mean you are off the hook. You still have to stay committed to the chosen debt consolidation strategy to get rid of your accumulated debt. You should also avoid taking new loans until you can deal with the existing ones.

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